CYPRUS: An Introduction to General Business Law: Dispute Resolution

The Landscape in Cyprus

Cyprus has established itself as a business and tech hub over the past few years. As one of the very few common law jurisdictions within the European Union, which also benefits from various bilateral and multilateral treaties, Cyprus is a jurisdiction that can very often be found within complex corporate structures and involved in high-profile international fraud claims, enforcement actions, cross-border insolvencies and asset-tracing exercises taking place in or through the country. In view of its geographical location, Cyprus has increasingly attracted large-scale disputes as a result of the conflicts in Ukraine and the Middle East, which have led to the relocation of a large number of companies on the island, especially in the financial services and tech sectors.

Judicial Reforms in Cyprus Meet Initial Targets

The Cyprus legal system has recently undergone radical reforms, aimed at modernising processes and increasing efficiency by tackling the chronic problem of delays in the administration of justice.

A new, extensive and fundamentally amended set of civil procedure rules (CPR) modelled after the English CPR was introduced in the second half of 2023. All new cases filed in Cyprus are now adjudicated on the basis of the new CPR and are subject to more structured and strict timeframes, to eliminate – to the extent possible – a build-up of further delays in the system. At the same time, the establishment of a backlog system, whereby specific judges were appointed to deal with older cases, has already assisted in clearing the dockets of the district courts across the island. 

As of 2023, Cyprus has evolved from a two-tier court system (comprising of the first instance courts and the Supreme Court) to a three-tier system. A second tier comprising of the newly established Court of Appeal, which hears appeals of all first instance judgments, has been introduced. Appeals from the Court of Appeal will be made either to the Supreme Court or the new Supreme Constitutional Court, depending on the nature of the matter to be decided, provided an issue of public interest or importance arises or where this is required in view of conflicting case law.

The Cyprus legal system has recently also embraced technology through the adoption of an electronic justice system, which has transformed the new case records of the court to electronic ones, to allow for better and faster scheduling of hearing dates and processing of court appearances. In recent judgments, first instance courts have also demonstrated a willingness to adapt to technological advancements and the modernisation of court proceedings; for example, by approving requests for the granting of witness testimony via videoconferencing.

The ongoing implementation of the recently introduced judicial reforms has already resulted in a major decrease in the backlog of cases pending over the past few years, with the Supreme Court of Cyprus announcing that the first-year objectives of the reforms have been met.

Commercial Court to Handle High-Value Commercial Disputes

The Commercial Court was established through the enactment of the Establishment and Operation of the Commercial Court and Maritime Court Law of 2022 (Law No 69(I)/2022) in May 2022 and is due to commence operation in the next months.

The Commercial Court will hear commercial claims with a value of over EUR2 million, including disputes relating to, inter alia, the following:

• • business contracts;
  • the provision of services;
  • the operation of capital markets;
  • commercial agency; and
  • disputes between regulated entities.

The Commercial Court will also have jurisdiction to try all cases relating to arbitration, competition and intellectual property, irrespective of the value of the claim.

Pursuant to Law No 69(I)/2022, litigants may elect to confer jurisdiction to the Commercial Court even when the dispute has no connection to Cyprus, while proceedings before the Commercial Court may be conducted in the English language.

Hence, the Commercial Court is expected to take up a large volume of commercial cases with cross-border characteristics, within the framework of which applications for interim orders are usually pursued for asset recovery purposes.

Impact of Global Geopolitical Tensions

The conflicts in both Ukraine and the Middle East have led to a substantial influx of business into Cyprus, establishing the island as one of the most attractive destinations for the relocation of international businesses.

Cyprus has developed very strong links with both Russia and Ukraine, having maintained a number of bilateral treaties covering political, economic, commercial, cultural and legal aspects, for several years, resulting in substantial flows of capital. As a result, because of the existence of Cypriot structures in companies/corporate groups from the CIS region, many high value and complex litigation and fraud cases have been adjudicated in Cyprus in recent years.

While such structures were significantly affected by the sanctions imposed on Russian businesses, initially causing negative predictions, a wide range of sanctions-related disputes has emerged, including disputes on contentious issues surrounding asset freeze structures and claims arising out of the operation of sanctions. At the same time, there has been a significant rise in the volume of work (including contentious matters) and interaction between Cyprus and the United States, due to the close relationship between the two states on a political level, which is expected to increase further in the next few years.

More importantly, Cyprus has benefited from the relocation onto the island of the operational substance of a number of international companies, together with their employees and their families. Cyprus has attracted foreign international businesses seeking alternative domicile due to geopolitical developments, by offering a number of incentives, including a favourable tax regime and various attractive tax schemes and has managed to establish itself as an appealing location for the relocation of international businesses, inevitably leading to a spike in disputes-related work.

The Rise of Fintech-Related Disputes

Cyprus has also grown as a fintech hub, with the foreign exchange industry contributing to the island’s rise in popularity over the past two decades. The courts are no strangers to fraud claims between foreign exchange companies or between them and their clients, something that would have been unfamiliar territory 15 years ago. Lawyers and judges alike grew accustomed to the concepts and operations of the foreign exchange industry relatively quickly, following its boom in Cyprus in the early 2010s.

Albeit still with some hesitation, Cyprus courts are also becoming familiar with digital assets such as cryptocurrencies, operating within the context of the EU’s comprehensive crypto-asset regulation framework. In view of the development of the digital finance sector in Cyprus, there has been an increase in disputes involving digital assets, and Cyprus courts are being called upon to adapt to the legal challenges posed by digital assets and to be proactive in protecting the victims of crypto fraud.

Concluding Remarks

The recent reforms and their early implementation leave us optimistic that the delays that have crippled the legal system in the past will be overcome, while the new specialist Commercial Court raises expectations for a drastically more efficient handling of international high-value business disputes, capable of serving the needs of the island’s rapidly growing international business sector.